Abra Group announced in a securities filing on late Thursday that it has ceased negotiations in regards to a potential merger between Brazilian carrier Gol, which it controls, and rival Azul.
That alternative is killed by the verdict, which eliminates the possibility of establishing a dominating Latin American airline in the country’s largest economy.
A combined Gol-Azul would have held a little less than 60 per cent of Brazil’s domestic air travel market and surpassed the local branch of the Chilean aviation Titan LATAM Airlines.
Already in January, Abra, the controlling investor of Gol and Colombia’s Avianca, signed a non-binding memorandum of understanding with Azul to examine the potential combination between the two carriers.
It had followed months of speculation about consolidation in Brazil’s fragmented aviation sector.
Bankruptcy proceedings shift priorities
The MoU was signed before financial concerns took precedence. Azul filed for Chapter 11 bankruptcy protection in May, complicating the merger negotiations.
Analysts had already warned that Azul’s legal restructure would likely block any merger.
Meanwhile, Gol had just exited from its own bankruptcy proceedings in June.
Abra wrote that in its letter to Azul, “the parties have not meaningfully discussed or progressed a possible business combination transaction for several months as a result of Azul’s focus on its Chapter 11 proceeding.”
Both airlines were heavily struck by industry-wide difficulties such as high debt loads, a drop in travel during the COVID-19 epidemic, and ongoing aircraft supply delays.
Abra recognised that the January memorandum of understanding reflected “another scenario and at another moment for the companies.”
Scrapped codeshare adds to setback
Another setback to integration attempts came when Gol and Azul withdrew their codeshare agreement for 2024.
CADE, Brazil’s antitrust watchdog, had thoroughly studied the partnership, which allowed for ticket cross-selling and reward program integration.
The codeshare was viewed as a test of whether the airlines could strengthen their collaboration while overcoming regulatory issues.
Its termination highlights a larger breakdown in the carriers’ relationships.
Competition concerns shape outlook
Abra closed the current chapter but left the door open for future debates. “We continue to believe in the merits of a business combination of Azul and Gol and, as such, Abra is ready, willing and available to engage with the relevant stakeholders,” according to the company.
Azul stated in a separate filing that the conversations had concluded. The company emphasised its commitment to rebuilding its financial structure and stated that it plans to leave bankruptcy proceedings in early 2026.
The possible merger had sparked concern among companies and authorities alike.
LATAM, Brazil’s second-largest airline, had criticised the concept, claiming that it would unfairly favour a single player.
Some analysts, however, contended that consolidation was essential in a market with high operating costs and constrained demand.
Government welcomes end of talks
The Brazilian government initially expressed support for the merger as a means of avoiding the failure of either Gol or Azul.
However, officials eventually changed their position, noting the dangers of reduced competition.
Following Abra’s announcement, Ports and Airports Minister Silvio Costa Filho praised the outcome. “The result is the strengthening of the airlines and the growth of aviation in Brazil,” he said in a blog post.
Airline stocks jump
Brazilian airline shares rose on Friday, after the news came out.
Those two also confirmed the termination of their codeshare agreement, which was inked in May 2024 to connect their Brazilian networks.
At 10:29 AM (Brazilian time), Gol’s (GOLL54) stocks were up 6.90% at R$6,04, and Azul’s (AZUL) 11.43% at R$1.17.
According to local media InfoMoney, Genial analysts noted that the exit was consistent with the challenges of purchasing corporate combinations in the aviation sector, with Azul currently in bankruptcy protection in the United States.
Bradesco BBI analysts also mentioned that following the end of the partnership, the connectivity offered to passengers has been reduced.
A Sector still under pressure
The collapse of the merger talks underscores the precarious nature of Brazil’s airline sector, which, despite signs of a recovery in travel demand, continues to be largely defined by financial trouble.
Gol and Azul will now go their different paths with the similar goal of balancing and strengthening their balance sheets, as well as resuming growth.
The remaining question of whether a merger would be possible may come down to the speed at which Azul finds its way out of bankruptcy, and how Brazil’s regulators balance the need for consolidation with the perils of less competition.
For now, though, the failure of the tie-up leaves LATAM as the biggest airline group in Brazil and highlights the challenges that still lie ahead for carriers across the region.
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